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Wednesday, November 19, 2008

How Citigroup Layoffs have a Wide Ranging Impact

November 18, 2008Computerworld — Given Citigroup's stated plans, a massive headcount reduction announced today is sure to include a fair share of IT jobs.

The financial giant said on Monday it was planning to reduce headcount by a staggering 52,000 employees over the next few months—the largest reduction by a company since IBM's layoffs of 60,000 employees back in 1993, and the 50,000 cuts by Sears that same year, says executive outplacement firm Challenger, Gray & Christmas Inc.

Citigroup's latest round comes on top of the 17,000 cuts that the company has already made in the first three fiscal quarters of this year.

The goal now is to pare down the workforce from its current level of 352,000 to about 300,000 employees worldwide, Citgroup CEO Vikram Pandit said in an investor presentation (PDF) posted on the company's Web site today.

That target number is nearly 75,000 lower than the workforce of 375,000 employees at Citigroup as recently as the fourth quarter of 2007.

About half of the reduction will come from Citigroup's divesture of non-strategic businesses, and the rest will come from layoffs that either already have been announced or are being planned, Citigroup said. "We entered 2008 with more people, more businesses and more assets than fit our strategy," Pandit said in the presentation. "We expect near-term headcount to be down 20 percent in order to run the company in the right way."

The move is part of a wide ranging effort to improve operational efficiencies and slash expenses at the financially troubled financial giant, reducing Citigroup's operating expenses from the nearly $62 billion it spent over the last year to between $50 billion and $52 billion. "There is nothing easy about these decisions and the impact on our people. We do this because we must and not because we want to," Pandit said.

No details have been released yet on where the job cuts will come from, or what job functions might be most affected. But TowerGroup analyst Guillermo Kopp said to expect a fair share of them to involve IT functions.

Citigroup has previously disclosed its plans to derive some major cost reductions from its multi-billion dollar 25,000 person IT organization. Last year, before Pandit became CEO, Citigroup announced that it would be overhauling its IT functions via a series of data center consolidations, better use of existing technologies, optimization of global voice and data networks, standardization of its application development processes, and vendor consolidation.

"Simplification and standardization of Citi's information technology platform will be critical to increase efficiency and drive lower costs as well as decrease time to market," the company said in April 2007 when it reduced headcount by 17,000 employees.

That IT cost-reduction focus appears to have sharpened under Pandit. In an investor and analyst briefing in May of this year, senior Citigroup executives told analysts the company hoped to trim at least $3.0 billion in operations and IT expenses over the next three years. About $1.5 billion of that was expected to come directly from IT costs reductions via measures such as centralization of IT operations elimination of duplicative and redundant technologies—such as the 16 separate database technologies it uses—and datacenter consolidation.

Marty Lippert, a former technology executive at the Royal Bank of Canada who in July was appointed CIO at Citicorp, is leading the transformational efforts at Citigroup's new centralized Global Technology and Operations division.

TowerGroup's Kopp said to also expect to see Citigroup seek headcount reductions by selling off and outsourcing IT operations where it can. He pointed to Citigroup's sale in October of its Citigroup Global Services arm in India to Tata Consultancy Services for $505 million as an example. As part of the deal, Tata will provide process outsourcing services to Citigroup under a nine-year contract valued at $2.5 billion.

For Citigroup, the latest cuts are about improving operational efficiencies by "returning the company to its core competencies," Kopp said. In the process though, Citigroup appears to be taking a sharply different approach than its main rival JP Morgan Chase , he said. Whereas JP Morgan has been making trying to use technology to gain a competitive edge, Citigroup's immediate focus appears to be more just retrenching to cut costs, he said.

"It's a bit paradoxical. For many years Citigroup was seen as a leader in technology," Kopp said.

"The overarching goal should be efficiency," Kopp said. "That can only happen when you do a deeper transformation of the business and by modernization of the technology platform."

What appears to be happening at Citi is the exact opposite, Kopp said. "It is about using the axe and cutting any development or investments" in technology out of necessity and not because it will help improve efficiency, he said.

"It may look like reducing expenses but that doesn't necessarily mean that productivity and the efficiency in the company will see any quantum improvements," Kopp said.

© 2007 Computerworld Inc.